Marginal product

1) Assume that in Canada the opportunity cost of producing 2 television sets is 3 bushels of wheat. Assume that in the U.S. the opportunity cost of producing 2 bushels of wheat is 3 television sets. If these two countries specialize according to comparative advantage and then trade with one another, then __________.
a. Canada will import both televisions and wheat
b. Canada will import wheat and export televisions
c. the U.S. will import wheat and export televisions
d. the U.S. will import both televisions and wheat

2) In which of the following ways is a monopolist different from a perfect competitor?
a. Average cost will continually decrease as output increases.
b. Price is below marginal revenue.
c. Price is below marginal cost.
d. Price equals average revenue.
e. None of the above.

3) A firm may become a monopolist because:
a. it may control the entire supply of a basic input that is required to manufacture a given product.
b. It has exclusive rights to make a certain product or to use a particular process.
c. It is awarded a market franchise by a government agency.
d. all of the above.

4) A perfectly competitive industry is characterized by:
a. a very large number of producers.
b. all producers produce a homogeneous product.
c. there is free mobility of resources.
d. all of the above.
e. none of the above.

5) An example of a negative externality is:
a. the decrease in your real income that results when photographic equipment you purchase increases in price because of increased demand by others for these items.
b. the reduction in the satisfaction you derive from fishing in a nearby lake caused by dumping of chemicals into the water.
c. the benefit you receive without paying when your neighbor installs a smoke detector.
d. the decrease in income to farmers that results from a drought.

Refer to the table above. Marginal product declines when which worker is hired?
a. The fourth.
b. The fifth.
c. The seventh.
d. The ninth.

7) When labor supply is inelastic a given increase in the wage rate causes:
a. no change in the quantity of labor supplied.
b. a relatively small increase in the quantity of labor supplied.
c. a relatively large increase in the quantity of labor supplied.
d. a relatively small decrease in the quantity of labor supplied.

8) If a union loses significant monopoly power, then:
a. employment and wages should increase.
b. employment and wages should decrease.
c. employment should increase and wages should decrease.
d. employment should decrease and wages should increase.

9) In principle, __________ have ultimate control over the U.S. economy.
a. corporations
b. households
c. multinationals
d. politicians

10) In a global economy, if domestic firms are unable to reduce labor costs in reaction to foreign competition, then most likely:
a. employers will be forced to find other ways to cut costs and remain competitive.
b. the profits earned by manufacturing firms will be reduced.
c. the prices charged for manufactured products will have to be raised.
d. firms will outsource the manufacturing to a foreign country where costs are lower.

Solution Preview

1. The opportunity cost of each TV in Canada is 3/2 = 1.5 bushels of wheat. In the US the opportunity cost of each TV is 2/3= 0.67 bushels of wheat. Similarly the opportunity cost of each bushel of wheat is 0.67 TV in Canada, and 1.5 TV in the US. Hence, US has a comparative advantage in TV and Canada has a comparative advantage in wheat. Therefore, Canada will import TVs and export wheat. Hence, (c): US will export TV and import wheat.

2. Answer is (d): None of the above. The price that a monopolist charges is above MR and MC, and has no relation to average revenue. The average cost only ...